Year End Tax Tips for Business Owners 2014. Tax Management is very critical, especially for small and medium-sized business. This presentation will provide.

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Presentation on theme: "Year End Tax Tips for Business Owners 2014. Tax Management is very critical, especially for small and medium-sized business. This presentation will provide."— Presentation transcript:

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Tax Management is very critical, especially for small and medium-sized business. This presentation will provide many year-end tax tips for 2014 that you can take advantage of to save your business more money.

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1) Withdraw funds from your corporation in a tax-effective manner: Pay Salary/Bonus from the corporation Advantages  Salary/bonus constitutes as “Earned income” and creates RRSP contribution room.  Salary/bonus is tax-deductible which reduces corporate tax payable.  Income-split with family members who are employees (i.e. related employees – spouse, child) by paying them salary/bonus which will reduce corporate taxable income, and hence, corporate taxes.  Pay into Canada Pension Plan which may be an important retirement strategy for you.

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Withdraw funds from your corporation in a tax-effective manner: Pay Salary/Bonus from the corporation Disadvantages  In comparison to dividends (which is taxed at a lower rate), receiving a salary/bonus can result in greater personal tax as it is fully taxable.  The corporation will be required to pay both portions of CPP (i.e. employer and employee portions).  More administration is required since CPP and income tax have to be remitted to the CRA monthly and T4 slips are required to be filed annually.

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Pay Dividends from the corporation Advantages  Dividends are taxed at a lower rate than salary/bonus, which can result in lower personal tax.  If the taxpayer has no other personal income, a certain amount of dividend income will be tax-free to the payee.  The corporation is not required to make monthly remittance to CRA for CPP.

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Pay Dividends from the corporation Disadvantages  Dividends are paid out from after-tax profits and thus, does not reduce corporate taxes.  Dividends do not constitute as “Earned Income” and hence, does not create RRSP contribution room.  Dividends also do not provide opportunity for other personal income tax deductions such as childcare expense deductions.

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Mixture of Salary/Bonus and Dividends  If the taxable income exceeds the $500,000 threshold, salary/bonus can be paid to reduce the taxable income to $500,000.  Dividends can also be paid by the corporation to the shareholder if more cash is required.

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Mixture of Salary/Bonus and Dividends  Whether you obtain salary/bonus or dividends from the corporation will depend on the personal financial situation of the owner/shareholder/ family members.  Factors such as cash flow need, personal and corporate income level, source deductions and payroll taxes on salary/bonus need to be considered.

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Other methods of obtaining funds from the corporation  Make capital dividend payments to shareholders which is tax-free.  Have the corporation repay the shareholder loans or charge the corporation interest on the loan.  If large amount of capital was initially invested into the corporation, funds can be extracted from the corporation tax-free to reduce the paid-up-capital.

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2) Repay Shareholder Loan or Charge Interest as an Expense:  Ensure you repay shareholder loans from the corporation within one year after the year end of the corporation in which the money was borrowed.  This will avoid inclusion of the loan amount as income on the personal tax return (unless specifically excluded through other provisions).

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3) Accrue Salary/Bonus before Year-end:  If salary/bonus is to be paid, the amount can be accrued before the year-end in order to benefit from corporate tax savings.  The salary/bonus payment does not have to be made immediately, and can be paid within 179 days from the year-end, thus deferring personal taxes.

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4) Maximize CCA on Assets  Increase capital cost allowance (CCA) claim on assets by buying depreciable assets and putting them into use before the year-end.

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5) Defer Disposition of Depreciable Assets until after Year-end  Consider selling or getting rid of depreciable assets until after year-end if recaptured income will result.

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6) Increase Business Expenses (Reasonably)  Consider the corporation’s near future requirements (ex. repairs, advertising), and obtain them before the year- end to have higher business expenses and reduce corporate taxes for the current year.

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Effective tax-planning is necessary and always beneficial. Implementing these year- end tax tips for 2014 will help you to decrease your taxes and save more of your hard-earned money.